Dimon says US yields 'extraordinarily low'

Christopher Anstey and Stephen Engle

May 9, 2019 — 5.07am

Beijing | JPMorgan Chase chief executive officer Jamie Dimon repeated his warning about the need to prepare for higher Treasury yields, despite their retreat since he said last August they could surpass 5 per cent.

"People tend to forecast a little bit of a change, and sometimes it's a huge inflection point which people almost never capture," Dimon said in an interview with Bloomberg Television in Beijing.

"When I talk to my board, we've got to be able to handle 5 per cent, 7 per cent, 8 per cent, 10 per cent because you don't know."

Jamie Dimon Bloomberg

While refraining from a year-end forecast for 10-year US yields, Dimon said that "4 per cent when you are having fairly good growth is not a bad number".

The current level of around 2.4 to 2.5 per cent "is extraordinarily low", he said. It was 2.48 per cent in afternoon trading on Wednesday in New York.

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Central banks' purchases of government debt "had to have an effect on the 10-year" yield, he said, though the Federal Reserve has now reversed its quantitative easing some. Even the Bank of Japan may one day need to follow suit, he said.

When Dimon cautioned last year that yields could head toward 5 per cent or more, the Fed was still projecting a series of interest-rate hikes for 2019. That all changed after market turmoil in the fourth quarter of 2018 helped persuade the central bank to shift to a patient stance on rates.

"There's nothing wrong with wait and see for the Fed" at this point, Dimon said. "But growth has been good and they've got to react."

The banker said it may be better for Fed officials to ditch projections entirely for the policy rate, given that they must always be "data dependent", keying decisions off of the latest indicators and outlook.

He said officials also need to think about whether the quantitative easing they deployed from 2008 to 2014 was really effective, and what its long-term impact will be. Along with considering the effect of regulatory changes, "they'll end up in the right place", he predicted.

Dimon played down concerns about the latest sell-off in stocks in response to US-China trade tensions. "I never worry that much about it. The market's always going to be reacting to different things."

"If you just raised the odds of a real global trade war a little bit," then the declines in equities this week were a "rational reaction", Dimon said. If the talks were to go "really south", it would hit world growth, said Dimon, who still estimated 80 per cent odds of a bilateral deal.

"It would be a huge mistake for American policy to be set based on the stock market," he added.